Canadian Natural Resources Limited (CNQ) Q1 2021 Earnings Call Transcript

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Canadian Natural Resources Limited (CNQ -0.51%)
Q1 2021 Earnings Call
May 6, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. We would like to welcome everyone to the Canadian Natural Resources First Quarter 2021 Earnings Conference Call and Webcast. Presentation slides are available to view with the webcast and in PDF format at www.cnrl.com. After the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, May 6, 2021 at 9:00 a.m. Mountain Time.

I would now like to turn the meeting over to your host for today's call, Corey Bieber, Executive Advisor. Please go ahead, Mr. Bieber.

Corey Bieber -- Executive Advisor

Thank you, operator, and good morning, everyone, and welcome to Canadian Natural's First Quarter 2021 Corporate Update Conference Call. As mentioned, to facilitate today's call, you'll find a copy of the presentation slides on our website which I would encourage you to download now in order to follow along. Canadian Natural had a strong first quarter financially and operationally. Our asset base is unique among our peer group, underpinned by long-life, low-decline assets, complemented by our conventional assets that allow significant flexibility and all of which can generate significant free cash flow. Beyond our robust asset base, there is a corporate strategy that focuses on generating real returns for shareholders and a driven management team and a corporate culture that focuses on being effective and efficient.

Over the years, Canadian Natural has demonstrated its robustness, sustainability and the strength of its business plan. For 2021 and beyond, I believe we are one of a few companies capable of delivering meaningful economic growth, increasing returns to shareholders and reducing absolute debt in a responsible manner. For today's call, Tim McKay, our President, will first provide a corporate update, Mark Stainthorpe, our Chief Financial Officer, will then provide an update on our financial -- 2021 financial outlook as well as our strong financial position. Tim will then provide a summary prior to opening up for questions. Before we kick off, I'd like to remind you of our forward-looking statements shown on slide three, and our reporting disclosures shown on slide four. Of note in our reporting disclosures is that everything will be in Canadian dollars unless otherwise stated. And as well, we report our reserves and production before royalties. I would also suggest to review our comments on non-GAAP disclosures.

So with that, I'll turn it over to you, Tim.

Tim S. McKay -- President

Thank you, Corey. Good morning, everyone. Starting with slide five. Canadian Natural is in a very strong position. We have great assets, operating excellence and with our capital discipline the ability to strengthen our balance sheet and deliver returns to our shareholders. This also applies to environmental, social and governance side of the business, ESG, where we are delivering industry-leading performance across the board, a significant factor in our long-term sustainability. Canadian Natural takes a long-term view on ESG, aimed at creating long-term value, ensuring we identify, assess, quantify, adopt and align ourselves and then execute. We are developing plans to address these risks by applying technology and innovation, so we can continuously improve our performance in the near, mid and long term, always ensuring it's adding value. Moving to slide six. If you look at the overall ESG performance in terms of investment priority, it's very clear that Canada is a world leader and scores the highest in every category and should be an investment priority. slide seven, a few weeks ago, our federal government had two announcements.

The first on April 19 was the federal budget, which recognizes that carbon capture, utilization and storage, CCUS is an important pathway for Canada to achieve its environmental goals. As well, a few days later, federal government announced that Canada will be increasing its goal from 40% to 45% reduction in GHG emissions by 2030. As part of the federal government budget announcement, we will participate in the consultation process with respect to CCUS, as well we'll work to align with these new goals. Next slide. Canada Natural -- Canadian -- Canada's oil and gas sector recognize the need to reduce GHG emissions, and we have been able to leverage technology and Canadian ingenuity to deliver impressive results. Canadian Natural has invested approximately $3.9 billion in R&D since 2009, using this investment to reduce our environmental footprint, unlock reserves and drive ever more effective and efficient operations, investing now to do even better in the future. Slides -- as it can be seen on slide nine, our third-party has reviewed our oil sands emissions and determined that for Scope one emission, Canadian Natural was 35% lower than our peer average.

While this is a good starting point, we are still progressing projects that will continue to drive our GHG intensity down. slide 10, for CCUS, Canadian Natural is using state-of-the-art carbon capture reduction technologies and is a leader in the oil and gas industry in the world. With this infrastructure in place, we can leverage them to capture more CO2. These three facilities are currently operating and are capturing approximately 2.7 million tonnes of CO2 per year, equivalent to taking approximately 576,000 cars off the road annually. Next slide. Another promising technology is solvents in both SAGD and the potential at Primrose in the steam flood area. At Kirby South, the pilot continues to perform well with GHG intensity reduction of approximately 45%, within the targeted range, and we'll continue to monitor its performance in 2021. The pilot at Primrose is targeted for commencement in Q4 2021. And similar to Kirby South, it will take a few years to evaluate its performance. In both cases, this technology can be applied to similar properties and can reduce our GHG intensity up to 50% and have targeted operating cost savings of approximately $1 per barrel.

Moving to slide 12. Getting to net zero takes the ability to leverage technology, be innovative using Canadian ingenuity. As well, we have defined actions in the near, mid and long term. Canadian Natural has a huge technology funnel with just a few of those activities listed here, as we progress our journey to net zero. Slide 13, we have a track record of continuously improving our GHG intensity. Since 2012, we have methodically improved our GHG intensity by 32%, equivalent to taking approximately 1.9 million cars off the road annually, and we are progressing projects to continue that trend of reducing our GHG intensity. Moving to the next slide. In summary, Canadian Natural is delivering leading ESG performance. Our long-life, low-decline assets are advantaged who can leverage technology, innovation and continuous improvement to deliver ever-improving environmental performance, delivering results over the long-term with a pathway to attaining net zero in the oil sands, as we work with governments. It's clear that Canadian Natural should be an ESG investment priority. Moving to our corporate update, slide 16. Canadian Natural continues to deliver strong operational results, and we are focused on delivering value for our shareholders.

In the first quarter, we delivered record production of approximately 1.246 million BOEs. Record liquids production of approximately 979,000 barrels a day, an increase of 6% and 4%, respectively, over Q1 '20, primarily as a result of our record oil sands mining, SCO production of approximately 468,800 barrels a day and strong North American E&P production, including thermal, of approximately 478,700 barrels a day. Our natural gas production was strong at approximately 1.6 Bcf, 11% increase over Q1 '20. Operating performance in all areas was strong with oil sands mining being top-tier at CAD19.82 per barrel, 5% lower than a year ago. And if you look at it from a macro perspective, it's even more impressive. Compared to a year ago, we're about 41,000 barrels a day higher. And when you exclude the cost of natural gas, the absolute dollar basis is very comparable to Q1 2020, a great job done by our oil sands mining team. Slide 17. Canadian Natural has robust economic, long-life, low decline assets. And relative to most of our peers, the ability to enhance the margins and grow production, which results in more long-term value. We have a diversified asset base with value enhancement plans for every product and basin we operate.

This is driven by our effective and efficient operations, our area of knowledge, ownership and operatorship of infrastructure. Canadian Natural has a history of capital discipline, which includes a flexible and effective capital allocation and our ability to be nimble to capture opportunities. We continue to simply optimize capital allocation and maximize value for our shareholders. We're ensuring we maintain a strong balance sheet. With our low maintenance capital and our culture of leveraging technology, innovation and driving continuous improvement throughout the company, gives us ever-improving operations. It's for these reasons, Canadian Natural has a leading free cash flow generation. Next slide. Canadian Natural has a balanced and diverse product mix with approximately 48% that is high value, light crude oil, SCO and NGL on a BOE basis, limiting our exposure to one product. For liquids production, approximately 81%, from long-life, low-decline assets, which requires less maintenance capital than our peers. As well, we have 1.6 -- approximately 1.6 Bcf of natural gas production or approximately 22% of our BOEs, well positioned to capture additional value as natural gas prices strengthen slide 19.

As a result of our unique asset base, Canadian Natural corporate decline is low at approximately 10%, with approximately 63% of our BOE production being long-life, low-decline or zero decline production. Because of this, we require less maintenance capital to maintain production than our peers. Next slide. We are executing our 2021 budget, the total budget of $3.2 billion, of which only $200 million is for growth capital, and we're growing our production by approximately 5%. Strong performance given that Canadian Natural is over one million BOEs a day. With the first quarter behind us, we are on track and will continue to be disciplined in 2021. With improved pricing that we are seeing today, we will generate significant free cash flow and pay down our debt very quickly. Slide 21, Canadian Natural 1P reserves are world-class among our global peers, which includes the super majors. A strong indicator of the strength and depth of our assets with approximately 30-year reserve life index, of which approximately 61% represents long-life, no decline SCO reserves, that has lower execution risk than many of our peers. As well, I remind you that 100% of Canadian Natural reserves are externally evaluated, reviewed by an independent, qualified reserve evaluators.

Moving to the next slide. When you look at net debt to 1P reserves, they were lowest among global peers. As well as you saw earlier, with two third being long-life, low decline SCO reserves, we have a lower cost structure and reserve risk. As you can see here on Slide 23, and Canadian Natural has the highest free cash flow yield among our global peers, an indicator of the strength of our assets, our effective and efficient operations and low maintenance capital. Slide 24. And net debt to cash flow, we're well positioned compared to our global peers with less debt to cash flow than a peer average. And it's only -- it's coming down very quickly, given our free cash flow profile for 2021. Slide 25, there are many positive factors ahead for the Canadian oil and gas industry. And in our opinion, the discount to global peers should disappear. Egress is improving, heavy oil differentials are back to historical levels in the low 20%. ESG is a priority and Canada being a leader, will be recognized.

Canadian Natural has much lower operating and maintenance capital compared to our global peers and should not be undervalued when compared to these peers. It is for these reasons, it's clear, Canadian Natural should be an investment opportunity. We have a sustainable business model, a growing sustainable dividend track record of twenty-one years at a 20% CAGR, which is top-tier compared to our global peers. Slide 26. Canadian Natural is a world-class investment opportunity. We have world-class reserves, much of it being long-life, low-decline assets, which gives us a low decline of approximately 10%, meaning low maintenance capital as compared to our peers. Our top-tier effective and efficient operations and our drive for continuous improvement will ensure our balance sheet will strengthen very quickly in 2021, as Mark will show you here shortly. As you saw earlier, this gives us the largest free cash yield percentage, nearly double our global peer average. Finally, we are focused on value creation, as we have grown our sustainable dividend for twenty-one years at 20% CAGR, impressive when compared to our global peers.

I will now turn it over to Mark for our financial review.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President of Finance

Thanks, Tim, and good morning, everyone. I'll start on Slide 28 with the Q1 financial highlights. Q1 was a very strong financial quarter, as effective and efficient operations, along with the improved commodity price backdrop, led to adjusted funds flow over $2.7 billion. The free cash flow generated was over $1.4 billion after the prudent capital program and dividends in the quarter. This led to substantial balance sheet deleveraging as absolute debt was reduced by $1.4 billion compared to Q4 2020 levels. This represents $2.9 billion of debt reduction since June of 2020, further underscoring the ability of our long life low-decline assets, combined with safe, effective and efficient operations to generate leading free cash flow. The sustainability of our funds flow allows for consistent and increasing returns to shareholders. In March of this year, we increased our quarterly dividend by 11% to $0.47 per share, which contributed to a year-to-date shareholder return of about $1.1 billion. This year's dividend increase represents the 21st consecutive year of dividend increases at Canadian Natural.

Canadian Natural's balanced approach to capital allocation, coupled with our sustainable free cash flow allows us for increasing returns to shareholders, while paying down absolute debt and growing our diverse asset base, something that sets Canadian Natural apart. This can be seen on Slide 29, the ability to deliver significant and sustainable free cash flow. As you can see, in 2020, we generated strong free cash flow in a lower commodity price environment. Now with the economic rebound and increased demand and pricing for commodities at approximately USD60 WTI, Canadian Natural is targeted to deliver substantial free cash flow in the range of $5.7 billion to $6.2 billion after budgeted capital and dividends. And as Tim mentioned, our free cash flow yields are tracking higher than global peers. Our long-life, low decline, low-risk assets continue to demonstrate why CNQ should be an investment priority. On Slide 30, you can see the results and the forecast showing the impact of our free cash flow generation. At strip pricing, our absolute debt is targeted to decline significantly, while returns to shareholders over the same period are targeted to be approximately $3.2 billion. Few peers, if any, have the ability to generate and balance this level of free cash flow and create long-term shareholder value.

The impact to leverage metrics is shown on Slide 31. Debt-to-EBITDA is targeted to exit 2021 at 1.1 times and debt-to-book capital is targeted to be under 30%. With a purposeful maturity profile that facilitates paying down absolute debt, you can see that so far in 2021, we have repaid and canceled over $1.6 billion of non-revolving facilities. Our history and commitment to balance free cash flow allocation is seen on Slide 32. Notwithstanding the challenging commodity environment in 2020, our assets and business model delivered. We were able to essentially maintain our net debt levels through the year, while executing an accretive natural gas acquisition, maintained our March 2020 dividend increase, followed by a further 11% increase in March 2021. We repurchased shares and increased both reserves and production. These are top-tier results, improve the resilience of the Canadian Natural business model and our commitment to financial discipline. On Slide 33, you can see the sustainability of the dividend at Canadian Natural. Dividend levels are continually evaluated against internal forecasts for cash flow, capital, free cash flow generation, and our ability to remain nimble and adjust our plans if conditions warrant.

This results in a business that can support a sustainable and increasing dividend over time and creates consistent value for shareholders over the long term. Slide 34 shows the five-year compound annual change in our dividend compared to global peers. Slide 35 displays this growth over ten years. And Slide 36 shows this growth over a twenty-year time frame. All of these slides illustrate the sustainability of our free cash flow generation and the company's priority to ensure ever-increasing returns to shareholders, including sustainable and growing dividends, as well as the prudent capital allocation at Canadian Natural. Slide 37 displays the history of dividend increases. As you can see, increases have varied depending on our position as it relates to cash flow and capital flexibility at any point in time, with the focus on sustainable increases. So in summary, on Slide 38, Canadian Natural has built an asset base that is unique and sustainable. And has developed a resilient business model that is flexible and can quickly adapt to changing environments. The assets and business model provide protection and challenging environments like we saw in 2020. Additionally, we are positioned to benefit exponentially, when commodity prices and markets are more favorable, like what we are seeing now in 2021. Our emphasis on balancing our four pillars, our enviable and diverse asset base and our execution focused teams with a history of strong results are all focused on driving long-term and increasing shareholder value.

With that, I'll turn it back to you, Tim.

Tim S. McKay -- President

Thanks, Mark. In summary, Slide 40, Canadian Natural's ability to deliver significant free cash flow in today's environment starts with our large reserve base, of which 83% being long-life, low decline. Of our approximately 1.246 million BOEs a day, long-life, low decline asset, asset-based make up approximately 770,000 barrels a day, of which approximately 455,000 barrels a day is no decline, high-value SCO production. We have a diversified product and assets that are driven by our effective and efficient operations, our area of knowledge, ownership and operatorship of infrastructure, and we have a low sustainable maintenance capital. We have 1.6 Bcf of natural gas and with our diverse assets' ability to add low cost production. We have flexible and effective capital allocation and our ability to be nimble to capture opportunities. We simply optimize capital allocation to maximize value for our shareholders. Our culture of continuous improvement is unique among our peers as our teams are focused on delivering safe, reliable, effective and efficient operations across our asset base.

Next slide. With oil at approximately USD60 per barrel, in 2021, Canadian Natural can deliver leading free cash flow generation of approximately $5.7 billion to $6.2 billion, which supports our sustainable growing dividend of twenty-one years. We have significant debt reduction, improving our already strong balance sheet. Finally, across the company, our teams are focused on reducing our environmental footprint through technology and innovation, and we look forward to participating in the federal government consultation period.

With that, I'll turn it over for questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Menno Hulshof from TD Securities.

Menno Hulshof -- TD Securities -- Analyst

Thanks for taking my question. Good Morning. I'll start with a question on the balance sheet. So your debt metrics, as you talked about, they're coming down really quickly, and you've made it very clear that the balance sheet will continue to attract the vast majority of free cash flow over the near term. So my question is, what is the endgame in terms of the leveraging process pre COVID? I believe you're targeting one and a half times and $15 billion of total debt. So do those targets still apply? And at what point can we reasonably expect buybacks to ramp back up again?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President of Finance

Hey! Thanks Good Morning. Yes, it's Mark. I think that when you look at the free cash flow generation, there is lots of optionality going forward here. As you have recognized the focus, though, is going to be on the balance sheet or on absolute debt repayment in the near term. We evaluate this all the time, and we'll continue to that go forward. As far as the buyback right now, we're looking at really just offsetting our dilution through the rest of this year, and that's the target today.

Menno Hulshof -- TD Securities -- Analyst

Okay Thanks Mark. And then my follow-up would be on basin egress. Maybe we could just get your thoughts on the current market access, including any thoughts on apportionment and inventories and how that is impacting your very early thoughts, I suppose, on pure maintenance versus growth into 2022.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President of Finance

Boy, there's a lot of speculation on that one because there's a lot of different items going the news here today. And -- but I think we're just going to step through it. As we expect the egress to continue to improve. Line three looks like it will be Q4, TMX maybe a little late, but still moving forward. Obviously, there are issues with Line five and potentially the Dakota Access. But it's too early to speculate. I mean, if you look at in Alberta today, the light oil side has zero apportionment. And so it's hard to speculate what that impact of those two items will be. Obviously, it will hurt Alberta to some extent, if there's an apportionment in a discount. And as well with the Dakota Access, again, if oil starts to come back in through Cromer, may or may not impact us because I would suspect the people that are on the Dakota Access are making their own arrangements ahead of time if they need to. So it's just really -- there's a lot of different issues there. I'm still very bullish in terms of that a lot of these egress issues will continue to move forward.

Menno Hulshof -- TD Securities -- Analyst

So fair to say that you're in a holding pattern through the end of the year?

Tim S. McKay -- President

Well, we're not changing our capital. It's -- we're basically just staying with the status quo.

Operator

Your next question comes from the line of Greg Pardy from RBC Capital Markets.

Greg Pardy -- RBC Capital Markets -- Analyst

Thanks Good Morning. Tim, just in your -- I guess it was Corey in the opening remarks, you talked about solvents and so forth. And I'm just wondering if you can maybe give us an update on where you'd expect to apply the solvent technology? And then just anything you might have to say on in-pit extraction and then also just potentially on autonomous haul trucks. Just interested where you're going with that technology?

Tim S. McKay -- President

Sure. So for the solvents obviously, the pilot at Kirby South is very advanced. And if we look across our asset base, both the Kirby sites and the Jackfish sites could be very amenable to that technology. So we're very happy with the results today. And now it's just trying to work out a plan of going forward. In terms of Primrose, the steamflood area, that's a little more experimental. We obviously have to pilot it for a couple of years to see if that can be applied to the Primrose area and the steamflood pieces. So too early to say about Primrose, but I would say for the SAGD, it looks very promising. IPEP. We continue to advance our commercial engineering. It's -- there's a lot of benefits to IPEP, but there's also a lot of capital cost upfront. So our teams are still evaluating it. And we hope to have something this year to say whether we're moving forward with it or not. It obviously is a leading technology. But again, one of the things we pride ourselves on is doing the detailed work and ensuring that the capital forecast that we use is correct. And then I guess, what was the last question there, Greg?

Greg Pardy -- RBC Capital Markets -- Analyst

Autonomous haul trucks, I was throwing everything in there.

Tim S. McKay -- President

Oh, the trucks. Yes. You know what, the autonomous trucks, some operators have more benefit because of the way they operate in that. And we have less benefit. But having said that, I mean, our teams are looking at electric and hydrogen technologies as well to reduce their environmental footprint. That's probably the biggest thing we see for our benefit is reducing our GHG and how to do it with either electric or hydrogen. But autonomous trucks, there is a bit of a cost piece there to that. And it really depends how efficient you are. And our teams do a great job. They measure our performance down to the second. So it's -- I'm really proud of the way our teams have operated in the oil sands.

Greg Pardy -- RBC Capital Markets -- Analyst

Okay. And just as a second question. You touched on Carbon Capture and Storage at the outset you guys have done this very early on, I think, with Horizon. And obviously, you'd mentioned AOSP and the Northwest upgrader as well. But maybe just focusing on Horizon for a moment, I think you've got that Carbon Capture and Storage right off the hydrogen plant. Would there be scope for you to increase how much of the CO2 you're capturing off of that -- off of the Horizon facility overall? Or are you doing much of that now? Just trying to get a sense there.

Tim S. McKay -- President

Sure. What we did early on and part of it was the sequestering the CO2 and the tailings. So off of one of the hydrogen plants we have Capture and it's not fully utilized because there's only so much CO2 that we can put into the tailings. And -- so there is available capacity there as well as on the second hydrogen unit that we could expand, capture and obviously increase more CO2 capture at Horizon. So there is those opportunities for sure.

Operator

Your next question comes from the line of Dennis Fong from CIBC World Markets.

Dennis Fong -- CIBC World Markets -- Analyst

Hi! Good Morning Thank you for taking my question. The first of me is just a follow on with the solvent strategy. I appreciate that you kind of gave us a little bit more context as to the stage of development for your work at Primrose versus the SAGD component of things. And obviously, you guys have been doing quite a bit in terms of lowering your GHG intensity as well. I'm just curious as to how much of the implementation of solvent technology at Kirby and Jackfish are currently potentially within your 2025 goals of reducing GHG intensity across your platform? And secondarily, how much do you think could be incremental to that with a successful pilot out of Primrose?

Tim S. McKay -- President

Yes. I would say it depends on, obviously, on how aggressive you want to be on that target. So if you look at just a normal approval building and that you're probably looking in that 2025 time frame for something like the SAGD piece here to really start to get into service. But that would be, in my mind, pretty aggressive. Obviously, I think the best thing for our company is to step through it and make sure that we do the right homework. But just from a construction point of view, considering that we're basically halfway through 2021, that would be, in my mind, kind of on the aggressive side to start to -- well, we would have to start almost today to get it in place by 2025.

Dennis Fong -- CIBC World Markets -- Analyst

Okay. So the idea then would be that any of these technologies could provide incremental benefit versus your existing 2025 goal of GHG intensity reduction, i.e., like the benefits are not currently kind of included in your goals added yet?

Tim S. McKay -- President

Yes, that's correct. If you look at -- well, there's a number of technologies we're working on. Obviously, in the meantime, there's a lot of other work being done to reduce our GHG emissions. But yes, carbon capture, the solvents are all future technologies. And same with the molten fuel carbonate cells. They're all future technologies that will actually help us to reduce the absolute CO2 emissions.

Dennis Fong -- CIBC World Markets -- Analyst

Perfect. And then just following on to -- on from Menno's question there, just around capital allocation. Obviously, the primary focus here is around reducing the absolute debt number and getting to a lower leverage situation. How should we be thinking about kind of the longer-term strategy, obviously, balancing between the four pillars, thinking about returning value back to shareholders. But also, there are a number of projects that are fairly low capital intensity and actually have fairly significant economic upside. How should we be thinking about maybe some of the criteria from a leverage perspective that you would consider before -- as well as egress before you would consider moving forward on things like IPEP, obviously, versus what you kind of described before or even debottlenecking projects at Horizon or some of the other low-cost projects that you've kind of discussed at AOSP as well?

Tim S. McKay -- President

Well, that's a very -- the hard part of that is that we would have to kind of speculate in -- on certain conditions, whether it's egress or pricing and it's really difficult to say. What I can say is, if you look out, I can't see us doing a major project, in terms of capital expenditure, in terms of Horizon expansion. If we do anything, I suspect, it will be very small. We'll leverage off our facilities. We're doing drill to fill on the gas side. With the oil side, it would be essentially brownfield small developments. I just don't see really any industry -- anybody in the industry really being aggressive on any kind of major capital program.

Operator

Your next question comes from the line of Neil Mehta from Goldman Sachs.

Neil Mehta -- Goldman Sachs -- Analyst

Thank you so much. You guys have proven out M&A is a core competency for your business. Tim, I just wanted your perspective on how you're seeing the A&D market at this point? And are there attractive opportunities either to buy or to sell?

Tim S. McKay -- President

What we see in that market today is that a lot of the smaller entities are doing deals merging and that. And I think they need to. On a bigger scale, I really don't see anything if I look at ourselves, we have no gaps. We have lots of opportunities within our own portfolio today. So I just -- what I see is there'll probably be a little more consolidation, but it will still continue at the smaller company's level.

Dennis Fong -- CIBC World Markets -- Analyst

Okay. That's helpful. And you guys did the Painted Pony acquisition, your large natural gas producer. Just curious what your thoughts are on the AECO market here? And any comments on how the natural gas part of your business is contributing to the cash flow in 2021?

Tim S. McKay -- President

Well, the Painted Pony assets was really an opportunistic acquisition about a year ago. Gas prices were obviously quite a bit different. And even the forecast was quite a bit different at that time. And with it, gas prices have strengthened, I think everybody is being, for the most part, significantly more capital disciplined now than they ever have been. And -- so I don't see any big concerns on the egress here in the short term. But I think people are getting their balance sheets in order, and the AECO price is looking strong. In our budget, we had about a $2.50, I think, roughly around $2.70, maybe $2.75 for the year now. So it's a little bit stronger, but it's -- obviously, we're continuing with our gas program as it seems to be holding in.

Operator

[Operator Instructions] Your next question comes from the line of Phil Gresh from JPMorgan.

Phil Gresh -- JPMorgan -- Analyst

Yes Hi Good Morning. I want to try just the balance sheet follow-up question, maybe just worded a little bit of a different way. The 1.5 times leverage target has historically correlated. It was something around $15 billion of net debt. Your target for the end of the year at these prices would be below that. It looked like closer to $14 billion. So I was just curious if -- has the net debt target -- having gone through COVID and things like that, has that longer-term target changed at all in your view? Do you still think it's a fair bogey for us to be thinking about, recognizing that even moving forward, if you shifted the mix that there'd still be a debt paydown element to it, I would think.

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President of Finance

Yes. I mean, when we were going into 2020, we were obviously forecasting some large debt reductions in that year. Things changed a little bit, we were able to kind of enter and exit pretty much flat and do that acquisition at the end of the year, which was strong. And now as we go into 2021, we're just back on that track of paying down absolute debt. And as I mentioned, with that maturity profile to actually facilitate being able to do that on an absolute basis. So I think, yes, as we track down lower, there's always going to be opportunity to look at that free cash flow and the optionality there to balance the four pillars. But just here in the near term, we're focused on that absolute debt reduction.

Phil Gresh -- JPMorgan -- Analyst

Okay. My second question is just around the sustaining capex of the business. Coming into the downturn, I think it was around a $3.7 billion forecast, now it's $3.0 billion. And I was just wondering how much of that in retrospect do you view as cyclical versus structural factors that you've just improved and taking costs out? And just with your updates here around GHG, do you think that there will be incremental capital spending required to achieve these objectives that maybe -- would be considered sustaining capital?

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President of Finance

Well, Phil, yes, the sustaining capital I mean obviously, there's a lot of factors that change from year-to-year. Obviously, the cost -- the absolute cost of doing business changes the cost of steel and everything else. So today, we're at the $3 billion, it's based on a balance of pretty much equal of oil and gas growth. So to me, we're -- depends on what kind of program we do in the future. A lot of times depends on the where our sustaining capital would be. In terms of the GHG piece, it's too early to say in terms of what that capital profile would be. Obviously, a big part of it is going to come out of what the federal government has in mind after this consultation period. And so today, I think we'll just look at -- participate in that process, and then we'll figure out where -- what that capital profile could look like. Obviously, carbon capture the way they had it, it obviously lends itself very good for the bigger facilities, whether they're cement plants or oil sands plants or fertilizer companies that -- it seems to be targeting some of the larger emitters. So we'll have to see what that program looks like here in the future.

Operator

There are no further questions at this time. I'll turn the call back to management for closing remarks.

Corey Bieber -- Executive Advisor

Thank you, operator, and that wraps up our formal presentations. I'd like to thank all of you for your participation this morning. If you do have any questions or follow-ups, please don't hesitate to give us a shout at the IR team. Thank you very much. Take care. Bye.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Corey Bieber -- Executive Advisor

Tim S. McKay -- President

Mark Stainthorpe -- Chief Financial Officer and Senior Vice-President of Finance

Menno Hulshof -- TD Securities -- Analyst

Greg Pardy -- RBC Capital Markets -- Analyst

Dennis Fong -- CIBC World Markets -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Phil Gresh -- JPMorgan -- Analyst

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